Update on Qualified Opportunity Funds

Proposed regulations on Qualified Opportunity Funds (QOF) were released at the end of October.  The regulations are complex, and a complete analysis is beyond the scope of a blog post.  However, there are some interesting provisions to note:

  1.  There was some confusion over whether the deferred gain had to be recognized 12/31/2026 if the property is not sold.  The answer is “yes.”
  2. Investment in a QOF can be directly in a Qualified Business Zone Property (QBZP) or indirectly in a corporation or flow through entity.  The rules are different for each.  Most interestingly, indirect investment cannot be in a so-called “sin business” such as golf course (I didn’t know golf was a sin), massage parlors, hot tubs, sun tanning and gambling, but the sin business prohibition does not apply to direct investment in a QBZP.
  3. If a QOF sells its interest in a QBZ, it can elect to defer again if the sales proceeds are reinvested in another QOF within 180 days.
  4. If you own a QOF via a partnership interest (or other flow through entity) and the partnership elects not to defer capital gain, you can elect to defer your distributive share of the capital gain by investing in another QOF within 180 days.

Comments are being submitted on these proposed regs.  We will continue to monitor this new investment opportunity.

About Grady Dickens

I created this blog to comment on items of current interest regarding trusts, estate planning, charitable planning and tax law, and share my knowledge and over thirty years of experience as an attorney practicing in Dallas, Texas.